Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Tier 1 Suppliers — Your Ultimate Procurement Guide for 2024

Key take-aways

  • Tier 1 suppliers are the primary suppliers of the company’s supply chain, affecting product quality and production timeliness. 
  • With the implementation of a supplier relationship management strategy for Tier 1 suppliers, the supply chain is optimized.
  • There are three tiers for suppliers, but Tier 1 emphasizes following sustainable procurement practices.

Tier 1 suppliers in procurement support the stability and timeliness of a company’s procurement operations. These suppliers improve the supply chain while maintaining efficiency and effectiveness. 

Understanding this specific supplier tier is crucial for forming robust sourcing strategies that align with a company’s goals and objectives.

This article expounds on what Tier 1 suppliers are, their importance in a company’s procurement process, and the existence of a hierarchical structure. 

Moreover, we will discuss the contributions of this supplier tier in creating a sustainable procurement environment.

Understanding Tier 1 suppliers is more than simply knowing supplier details and how to optimize them.

It is about fostering collaborative insights while promoting a better procurement environment. It emphasizes commitment, compliance, and procurement betterment.

What are Tier 1 Suppliers?

Tier 1 suppliers in procurement are the primary suppliers of the company’s supply chain. They deliver the necessary materials to the company’s product assembler or manufacturer. 

This process means that the tier 1 suppliers are the trusted partners of the company in ensuring quality products. 

Additionally, these crucial suppliers contribute to a company’s overall production process. They handle partnerships with the original equipment manufacturer or OEM.

Examples of OEMs are Apple, Intel, Samsung, and Asus. Overall, Tier 1 Suppliers are responsible for ensuring the smooth and quality manufacturing of a company’s end product. 

Implementing a robust supplier relationship management strategy for Tier 1 suppliers is crucial for optimizing a company’s supply chain. It ensures supply chain continuity. Additionally, it stabilizes a company’s operations. 

These direct suppliers strengthen a company’s supply chain and ensure successful procurement operations. 

They should undergo comprehensive supplier selection criteria, ensuring they can accommodate the company’s specifications in providing quality products. 

A Tier 1 Supplier means that a company depends on your material to deliver marketable and dependable products. These suppliers efficiently supplement the company’s procurement operations through quality materials, timely delivery, and consistent communication.

Why are Tier 1 Suppliers Important?

Tier 1 suppliers highly contribute to a company’s procurement process due to their direct influence on its supply chain. They affect product quality, cost-effectiveness, and production timeliness. 

These partners provide crucial materials that improve the overall manufacturing process. Moreover, these suppliers optimize production and product delivery to the point that they impact inefficiency reduction. 

These suppliers collaborate with companies in identifying supply chain disruptions and potential risks. The team-up minimizes risks and improves the end product. 

Tier 1 suppliers ensure companies meet and maintain their high-quality standards. These suppliers possess quality services, pass company requirements, and exceed company expectations. 

They support a company’s cost-saving process and provide competitive pricing to maintain robust partnerships. 

These tier 1 suppliers handle the component’s timely delivery and enforce efficiency in managing the market’s volatility. Moreover, improving relationships with these suppliers remains vital in maintaining supply chain resilience. 

Ultimately, these suppliers are crucial for maintaining market competitiveness while providing quality end products. 

Supplier Tiers

Knowing the different supplier tiers can help a company manage its supply relationship management. It enhances their approaches and strategies towards these suppliers.

Consequently, having a tier system organizes the importance of grouping suppliers to address a company’s supply chain needs. 

The tier system streamlines operations rather than favoring one supplier over the other. Below are the three different supplier tiers, each with a defining purpose in the procurement operation:

Tier 1 Suppliers

Tier 1 suppliers are the primary supplier level in a company’s supply chain. They directly provide the company’s procurement acquisitions. 

They act as the main partners in delivering quality materials and services. These suppliers ensure the necessary components are quality and minimize component errors. 

A Tier 1 supplier example is the Hon Hai Precision Industry Co. or Foxconn. This supplier delivers integral components to industry leaders like Apple in creating high-quality devices for the market. 

This supplier meets the industry’s standards and compliance requirements, proving their importance in the supply chain hierarchy.

Tier 2 Suppliers

Tier 2 suppliers are the ones servicing the Tier 1 suppliers. This tier type ensures that the 1st supplier meets the company’s standards and requirements. 

Instead of directly servicing the company, they serve as partners for the 1st tier. Indirectly, they affect the company’s overall product. This process happens due to supplier specializations and focus. 

Tier 2 provides specialized components that the Tier 1 supplier needs to finalize the material the company needs. This inner supply layer maintains efficiency throughout the overall supply chain process. 

For example, Samsung can also serve as a tier 2 supplier by providing specialized materials such as processors, memory chips, and monitor displays. 

Tier 3 Suppliers

Tier 3 suppliers are the last tier suppliers. They provide the raw materials that tier 2 suppliers transform into specialized components that the tier 1 suppliers use to finalize a company’s end product. 

Even when they’re already far into the product’s building order, they remain crucial in impacting the end product. 

A definite example of a tier 3 supplier is a coffee bean farm supplying beans they will process for major coffee industry producers such as Nestle’s Nescafe product line.

Tier 3 suppliers fulfill specific product sourcing requirements that maintain the integrity of this process. 

Having reliable tier 3 suppliers promotes supply chain efficiency and defines the importance of maintaining and optimizing it. 

Moreover, consistent communication and coordination with tier 2 highly benefit the tier 1 supplier’s consistency in delivering products for the company.

Ultimately, maintaining collaboration between the supplier tier hierarchy remains essential for optimizing the supply chain and the company’s procurement operations.

Tier 1 Suppliers and Sustainability

Tier 1 suppliers emphasize upholding sustainability procurement practices, as modern procurement requires more ethical and environmentally responsible operations. 

These primary supplier partners influence promoting sustainability practices in the company’s supply chain. More than providing components, tier 1 suppliers affect the final product’s effect on the environment. 

For this reason, companies carefully form partnerships with potential Tier 1 suppliers to align with their goals and objectives.

Commitment is a crucial aspect that tier 1 suppliers must follow in maintaining sustainability. This aspect extends toward the whole supply chain. 

From tier 1 to tier 3, this encompassing factor serves as a standard for these suppliers to follow. They must show commitment towards environmental standards and promote procurement best practices in an environmentally friendly way. 

Modern procurement highly values active engagement with sustainability practices and the goal of creating a more responsible procurement environment. 

Consequently, suppliers must follow considerations such as fair practices, operations accountability, and standards compliance. Following these considerations improves the company’s reputation and increases visibility for potential partners. 

This process fosters a proactive process that creates a chain reaction of encouraging suppliers to join green procurement and this sustainability effort. 

The collaborative aspect of sustainability also promotes an active business approach, compelling healthy competition between rival companies while pursuing this cause.

Moreover, it benefits the business environment by allowing companies and organizations to recognize better opportunities for growing and developing their respective businesses.

Embracing sustainability also supports the risk mitigation strategies of companies. It allows them to recognize potential regulatory risks that result in environmental incidents.

In addition, it helps tier 1 suppliers to avoid possible lapses, ethically and in a business approach. This process cultivates partnerships, potential concerns such as identifying supply chain disruptions, and safeguards from potential issues.

Integrating sustainability with Tier 1 supplier relationships bolsters its effectiveness and provides a stable foundation for a resilient supply chain. 

Aligning supplier relationships with this relevant procurement standard fosters procurement excellence while promoting environmental responsibility.

My Insight on Supplier Value and Sustainability

For this article, I shared my insights about supplier value and sustainability.

“Understanding your supplier’s value is crucial to creating better opportunities for your company’s sourcing strategy. 

It’s not simply about gaining supplier favor but also expanding your operations while maintaining this vital relationship with your partner.

Supplier value develops with its performance and contribution to your company’s procurement operations. 

More than company expenditure, suppliers also affect various factors such as product quality, timely delivery, service reliability, their knack for innovation, and dependency. Knowing these factors makes a supplier, in this case, a Tier 1 supplier, dependable and collaboratively responsible. 

Your supplier’s commitment proves crucial in avoiding potential risks while advancing in the vast procurement landscape. 

Moreover, the partnership helps you navigate procurement complexities and share the benefits of learning from it. This collaboration protects the partnership while enhancing it for the long run. 

On the other hand, these suppliers must also consider current sustainability standards as the procurement environment moves towards sustainable practices. 

Failure to comply may damage both reputations as you engage in a partnership. Global expectations with procurement are continually growing, and you need a supplier that readily complies with the standard.

Supplier value grows with committing to best practices and the partnerships you build. Whether it is a tier 1 supplier, tier 2 supplier, or even a tier 3 supplier, complying with the recognized standard is vital in upholding procurement practices. It demonstrates competitiveness and accountability.

This holistic approach builds a thriving procurement environment, fostering resiliency, innovation, and operational success.“

Marijn Overvest

CEO/Founder, Procurement Tactics

Conclusion

It is crucial to recognize tier 1 suppliers as vital partners in a company’s procurement operation. They support the company’s product quality, strategic cost-effectiveness, and developing supply chain processes.

Enforcing robust supplier relationship management procedures is crucial to optimize and maintain relationships with these suppliers. 

Consequently, it develops the company’s reputation,  opening opportunities for potential partnerships. This process ensures continuity and competitiveness in the business environment.

Moreover, we highlight the importance of sustainability procurement practices in shaping tier 1 supplier relationships and its joint responsibility. Knowing essential procurement standards is crucial for developing environmental responsibilities and avoiding potential risks.

This process showcases commitment, accountability, and resiliency while promoting innovative procurement practices. 

Companies can create better opportunities and lasting partnerships and explore evolving landscapes as they understand the crucial roles of their partner suppliers.

Frequentlyasked questions

What are Tier 1 Suppliers?

Tier 1 suppliers in procurement are the primary suppliers of the company’s supply chain.

Why are Tier 1 Suppliers Important?

Tier 1 suppliers highly contribute to a company’s procurement process due to their direct influence on its supply chain.

What are the Supplier Tiers?

The supplier tiers are Tier 1 or the “Assembly Tier.”, Tier 2, or the “Components Tier.”, and Tier 3, or the “Raw Material Tier.”

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics